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Buffett’s Fastball on the Buffett Tax September 22, 2011

Posted by seeineye in : Politics , add a comment

Warren Buffett pays himself just $100,000 a year in salary. His 17.4% tax bill is due to the low capital gains tax rate on his stake in Berkshire Hathaway, a stake valued at an estimated $38 billion. Buffett only pays taxes on that stake if he sells his shares. Since he sits on them, his tax bill is low. 

So, instead of the billionaire calling for taxpayers to pay higher taxes for President Barack Obama’s reckless, wasteful $4 trillion in spending that didn’t move the needle on unemployment, why doesn’t Buffett instead only back the hike in the tax rate that hedge fund and private equity fund managers pay?

Why force job creators, small businesses, and those who work hard for a living pony up more to cover the White House’s foolish stimulus bets with your tax dollars? When IRS data clearly show small businesses are overtaxed and overwhelmed by insensitive federal policies, and who are not in the Buffett mega-billionaire investor class?

Why doesn’t the mega-billionaire simply say: “I back the section in the president’s new plan which would raise the tax rate on carried interest, or a share of the profits, to the regular income tax rate instead of the lower 20% capital gains rate that I and other investment managers now pay?” That carried interest is not subject to payroll taxes, either, keeping Buffett’s tax bill low. 

But if he cares so much that he is not paying enough, why doesn’t Buffett just outright pay, say, 70% of his income to the government directly (the top rate in 1980), instead of roping everyone else into paying higher taxes to satisfy his conscience about fairness, which oddly doesn’t address the government’s blatant waste of tax dollars?

Wouldn’t this idea be better in keeping with the spirit of Buffett’s compensation style anyway — that you get rewarded based on profits earned from making smart, risky bets, and you don’t get paid if you lose money by taking too much risk — which is how the government has been treating your tax dollars?

Back in 1956, when Buffett launched his investing partnership, the structure he chose for his new business venture meant he would have to shoulder investor losses first before he himself got paid. Partnerships distribute a share of their profits to partners every year, what’s called carried interest, as compensation.

Back then, Buffett also opted to only take those losses, and not his share of any profits, until his investors earned more than the government bond rate, which is a so-called risk free rate. That was in keeping with his standard of fiduciary duty and stewardship of his investors’ money. Buffett gets rewarded for risk, as did his investor owners, as he regarded them, and he lost money if he made foolish bets. Unlike politicians, who get re-elected despite wasting your money.

And now President Barack Obama wants to pay for his new $447 billion jobs act with more tax hikes. The president just introduced a new plan to reduce the federal deficit by about $3.6 trillion over a decade, about half of which would come from tax increases. And that includes the president’s new “Buffett rule,” which has three elements: Repeal the Bush tax cuts for the $250,000-plus crowd, cap tax deductions at 28% for this group, and tax carried interest. The president cites Buffett’s argument that his effective federal rate is just 17.4% in wanting to tax the so-called rich–among whom are the jobs engine of the economy, small businesses.

The President’s new tax on the rich is a sort of new alternative minimum tax for the upper brackets. Just as the first AMT, enacted in 1969, is not indexed to inflation, it’s likely that this new tax would not be either. For that reason, the old AMT is increasingly hitting the middle class. Inflation is key here–all of the Federal Reserve’s money printing creates inflation. Because the AMT bracket is not indexed, the money printing hurts taxpayers–a flip side that shows how recklessly hurtful loose monetary policy really is.

Buffett is being misleading when he uses his low 17.4% tax rate as proof that the rich don’t pay their fair share. Because Buffett essentially favors raising everyone else’s taxes that he doesn’t pay. Separate from his $100,000, salary, he plans to donate his wealth to the Bill and Melinda Gates Foundation, which would lower his federal and estate tax bill. 

Ask yourself, if Buffett truly cares so much that he thinks the government doesn’t get enough money out of rich people, why doesn’t he forego donating to charity and instead donate all those funds to the government?

Meanwhile, he often uses taxable income in discussing why it’s all right to hit the higher brackets with higher taxes. But he never uses the term adjusted gross income, which is misleading too, because that lower figure comes after he chops that figure down with his donations to charity.

And the Buffett tax would hurt small businesses, which generated 65% of net new jobs over the past 17 years, and which create annually more than half of nonfarm private GDP. Small businesses also employ nearly 80 million workers or approximately half of all private sector employees.

Small businesses typically file taxes on the income tax level, as a sole proprietorship or S corporation, which is essentially filing as an individual. At least 75% of small businesses file taxes on business income at individual rates, says the National Federation of Independent Business. Two thirds, or 65%, of joint filers with income above $250,000 and 50% of single filers above $200,000 earn business income. 

In other words, about half of those subject to the Obama tax increases are small businesses with employees. This tax increase would directly cut job creation. Already, annual federal regulations cost the country’s small business $1.1 trillion annually, says the SBA. 

Instead, Buffett should be saying: “I want more millionaires, I want more billionaires, I want a lower flatter tax rate so everyone pays their fair share, and the president should too. Because the upper brackets are paying most of the federal taxes in this country, and when you hit them with higher rates, you hit small business job creators. Plus the mega rich routinely lower their tax bill by hiring a posse of tax lawyers and accountants to shelter their income in offshore accounts. So do corporations. A flat tax would make companies pay more because it would shut the loopholes.”

For example, General Electric (GE: 15.38, -0.66, -4.11%) paid nothing in taxes last year due to write-offs associated with losses from its financial services arm; GE is a master at lowering its taxbill. Google (GOOG: 539.20, -7.42, -1.36%) paid an effective rate of 2.4%, far below the 35% statutory corporate rate for publicly traded. Goldman Sachs (GS: 97.86, -4.75, -4.63%) paid $14 million last year on its billions of dollars in revenues.   

Here’s what IRS data show — ask yourself how the White House and Buffett define fair share. You’ll see the U.S. tax code is already pretty progressive, and why the OECD, the European economic development group, calls the U.S. tax code one of the most progressive in the world.

The really high earners, taxpayers with annual incomes at $10 million or more–call them the top 0.1% of all federal income tax returns–accounted for 4% of all taxable income in the country, had an average federal income tax rate of 26%, and paid 6% of all personal federal income taxes, according to IRS data as of 2009.

The top 2% of taxpayers who make $1 million or more were responsible for a big 20.5% share of federal income tax receipts in 2009, even though they accounted for just 13% of all taxable income in the U.S.. The average income-tax rate of those earning between $1 million and $10 million was 24.6% in 2009.  

Taxpayers with adjusted gross income at $500,000 or more a year accounted for 0.5% of all federal income tax returns, earned 19% of  total U.S. taxable income, but paid 29.8% of all federal personal income taxes. They had an average federal income tax rate of 24.5%. 

Taxpayers with adjusted gross income at $200,000 or more a year accounted for just 2.8% of all federal income tax returns, but paid 50.2% of all federal personal income taxes even though they earned a third of all taxable income in the U.S. They had an average federal income tax rate of 22.2%. 

Meanwhile, according to the Congressional Budget Office [CBO], middle-class families in 2007, those earning between $34,000 and $50,000, paid an effective 14.3% of their income in all federal taxes. And nearly half of all taxpayers do not pay federal taxes, although they pay state, local and payroll taxes, depending on their bracket. This means the top 3% paid more than the bottom 97%.

And while Buffett says the rich need to do more to pay their fair share, they actually paid a third more in federal income taxes in 2008 than they did in 2001, IRS data show.

Even before the recession, the $200,000 income group paid 54.5% of the income tax. In 2007, 390,000 tax filers reported adjusted gross income of $1 million or more. They paid $309 billion in taxes. As the recession hit hard, in 2009, there were only 237,000 such filers. That’s a drop of 39%. That means about four of 10 millionaires disappeared in two years, and the total taxes they paid in 2009 declined to $178 billion, a drop of 42%, reports The Wall Street Journal. The number of those with $10 million or more in reported income dropped to 8,274 from 18,394 in 2007, a 55% decline, says the paper. As a result, their tax payments tanked by 51%. These disappearing millionaires go a long way toward explaining why federal tax revenues have sunk to 15% of GDP in recent years, says the WSJ.

And the taxes paid by the richest 400 in 1994 were almost identical to the amount they paid in 1992, despite the intervening Clinton tax hike, says the WSJ. But by 2000, just 123 of these 400 paid 25% or more in taxes, down from 30% before Clinton’s tax hikes went into effect, IRS data show, which means they sheltered their income.

In contrast, capital gains taxes paid by these super rich rose dramatically each time the government cut the capital gains rate, as they were more willing to realize gains at the lower rates, says the WSJ. At higher cap gains rates, taxpayers sit on their assets, afraid of paying. It says realized capital gains climbed 28% after the rate cut in 1997, and 21% after the 2003 cut, based on IRS data.

Besides, doubling the tax rate on Mr. Buffett’s fellow billionaires, the country’s 400 wealthiest households, would only raise enough money to run the federal government for only two days, says the WSJ.

Don’t forget this either. Earlier this year, Treasury Secretary Timothy Geithner told the House Small Business Committee  that the Obama administration believes taxes on small business must rise in order that the administration does not have to “shrink the overall size of government programs.” Geithner initially responded by saying that the administration’s planned tax increase would hit “three percent of your small businesses.”

A Congressmen though retorted: “Sixty-four percent of jobs that are created in this country are for small business.”

After Mr. Geithner agreed to that point, he testified that the administration’s planned tax increase on small businesses would be “good for growth.”

Specifically, he said he felt the Administration had “no alternative” but to raise taxes on small businesses because otherwise “you have to shrink the overall size of government programs”—including federal education spending.

Remember this too: President Obama has always got what he wanted. Under his direction, Congress passed $830 billion in stimulus, $3 billion for cash for clunkers, $30 billion in small business loans, $30 billion for mortgage modification, the GM-Chrysler bailouts, health reform, Dodd-Frank, credit card price controls, Build America Bonds, and jobless benefits for a record 99 weeks.

And now the president wants another $447 billion for a newfangled Jobs Act that contains rehashed, warmed over ideas.

Source By Elizabeth MacDonald

Is U.S. Nearing Debt of No Return? September 21, 2011

Posted by seeineye in : Politics , add a comment

The Joint Economic Committee, the bicameral group of legislators that reports on the nation’s economic picture, asked some troubling questions in a hearing Tuesday — what is the tipping point for the enormous debt the U.S. is carrying? And at what point do the nation’s debts start to weigh down the economy so much, it turns into a long-term slump?

Witnesses testifying on Tuesday said the nation shouldn’t even look for a tipping point, warning that the experiences of Greece or Italy and other heavily indebted nations show that the financial markets panic without warning.

“We know that the debt is now 100 percent — approximately 100 percent of (gross domestic product),” said Allan Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh. “That doesn’t include the unfunded liabilities. It doesn’t include (mortgage lenders)Fannie Mae and Freddie Mac. It doesn’t include a number of other things.”

By unfunded liabilities, Meltzer means entitlement programs. Social Security and Medicare alone have $46 trillion in unfunded liabilities, meaning that much more is promised in benefits than the government — and taxpayers — have as a plan to pay for them.

But some economists, and the Obama administration, argue that cutting too much spending too quickly could slow the economy even further. One witness told the committee that spending should be cut only a little now, but he also argued it must be cut a lot in the future to make up for that.

“The government would commit to lower deficits in the future, without sharply cutting the current deficit,” said Laurence Ball, a professor of economics at Johns Hopkins in Baltimore. “Just as one example of how this might be done, one could imagine cost-saving measures in entitlement programs, such as a higher retirement age, that could be phased in over time. With any luck, major spending cuts would occur only after the economy has recovered from its current slump.”

President Obama, in his latest plan to create jobs, dropped earlier proposals to do exactly that — to raise the eligibility age for Medicare and to change the inflation adjustment to Social Security payments.

The president has argued it is necessary to reform the programs in order to save them, but in deference to the Democratic base, he has only proposed cuts in payments to providers such as doctors and hospitals, at least until after 2017 when he would no longer be president even if he were to win a second term.

Chris Edwards, Director of Tax Policy Studies at the Cato Institute, a libertarian think tank in Washington, argues that U.S. debt is so far out of control that it must be contained soon.

“We’ve had five trillion (in) deficit spending since 2008, the most enormous sort of Keynesian stimulus you can imagine, and yet we’ve had slower growth than any time since World War II. So I don’t think spending helps.”

Meltzer pointed to three “fiscal changes that really did enormous good.” One was the tax cuts from the Kennedy and Johnson administrations, the most effective part of which were business tax cuts.

“They got the biggest bang for the buck,” he said.

The second were the Reagan-era tax cuts which came in two rounds and boosted a flagging economy. Meltzer said a completely different option worked well too.

“(The) third policy that gave people confidence were the Clinton tax increases, which assured people that their future tax rates were not going to go up, that they had seen what they were going to have to take, and there wouldn’t be anymore.”

Meltzer said the increases gave people certainty about what tax rates would be, which reassured businesses they wouldn’t go higher, allowing employers to plan and create jobs with confidence.

“It gives people confidence. That’s what the public desperately needs at the moment,” he said.

And he pointed to current conditions with this warning. “Fearing higher uncertainty about regulation and taxes, many investors hold cash and wait. Cash is their friend.”

But investment and job creation is what the economy needs and the government is not in a position to be the engine. Ball, who warned about cutting spending too abruptly, said debts must be cut.

“Oh, absolutely,” he said. “I think probably all three of us agree there is a tipping point and we don’t know where it is, and it would be prudent not to find out.”

Couple Sues EPA for Abuse of Power September 17, 2011

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Rep. Raul Labrador, (R-Idaho), on the EPA preventing Mike and Chantell Sackett from building a new home, claiming their property is a wetland…

Obama’s Jobs Bill: A Promise to Cut Taxes by Raising Them? September 16, 2011

Posted by seeineye in : Politics , add a comment

Recently, Obama called a joint session of Congress and on September 8 he stood before it to introduce his new jobs bill. At that time, he didn’t actually have a jobs bill, but promised he would soon. Then yesterday, on the White House lawn, he basically gave a condensed version of the same speech and he was grinning from ear to ear because he actually had a bill with him this time.

The bill was the American Jobs Act of 2011. And the catch is it’s really just Stimulus Part Two: its focus isn’t creating jobs but raising taxes.

In all honesty, Obama’s job bill is basically a promise to cut taxes by raising them.

It will increase taxes on corporate jet owners by a total of $3 billion, on capital gains by $18 billion, on oil and gas companies by $40 billion, and on individuals making over $200,000 a year by a total of $400 billion (over 10 years).

This is a mess folks. The tax on corporate jet owners is class warfare plain and simple. It’s one of the taxes that Obama tries to justify with his one-size-fits-all-mantra: “Time for the wealthy to pay their fair share.”And the tax on capital gains is nothing less than highway robbery. It will be done by categorizing some capital gains from hedge funds as income, thus allowing them to be taxed (in upper tax brackets) at more than twice the normal 15% tax currently in place for capital gains.

Does it still sound like the American Jobs Act of 2011 is about cutting taxes and creating jobs to you?

If so, consider the ramifications of raising taxes on gas and oil companies by $40 billion. Obama’s Budget Director Jack Lew says he believes “Americans would easily end tax breaks for oil and gas companies…to spur [economic] growth.” The problem is, ending tax breaks for oil and gas companies won’t spur anything but higher fuel prices and therefore, less money left for discretionary spending for most Americans.

(I have a feeling Mr. Lew knows about as much about economic growth as Obama does about being President, but I’ll save that for another time.)

Note to Mr. Lew: Oil and gas companies won’t pay the tax increases – they’ll simply pass them on to consumers. And as a result, we’ll soon long for the day when a gallon of gas was “only” $3.50 a gallon.

Lastly, the goal of raising taxes on individuals making more than $200,000 is not only repulsive in principle, but breaks yet another one of Obama’s campaign pledges (I know, who’s even counting anymore).

Remember, throughout the 2008 campaign Obama promised not to raise taxes on anyone making less than $250,000 a year. But that was then, and now, with his presidency going down in flames, he’s grabbing money wherever he can find it. And that means, if you make $200,000 a year Obama wants to raise your taxes.

Maybe Obama should have let John Kerry introduce this bill so he could have at least claimed to cut taxes before he raised them?

Source by AWR Hawkins

Solyndra Not Sole Firm to Hit Rock Bottom Despite Stimulus Funding September 15, 2011

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Solyndra, the solar panel company whose highly publicized failure and consequent investigation by federal authorities has flashed across headlines recently, isn’t the only business to go belly up after benefiting from a piece of the $800 billion economic stimulus package passed in 2009.

At least four other companies have received stimulus funding only to later file for bankruptcy, and two of those were working on alternative energy.

Evergreen Solar Inc., indirectly received $5.3 million through a state grant to open a $450 million facility in 2007 that employed roughly 800 people. The company, once a rock star in the solar industry, filed for bankruptcy protection last month, saying it couldn’t compete with Chinese rivals without reorganizing. The company intends to focus on building up its manufacturing facility in China.
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SpectraWatt, based in Hopewell Junction, N.Y., is also a solar cell company that was spun out of Intel in 2008. In June 2009, SpectraWatt received a $500,000 grant from the National Renewable Energy Laboratory as part of the stimulus package. SpectraWatt was one of 13 companies to receive the money to help develop ways to improve solar cells without changing current manufacturing processes.

The company filed for bankruptcy last month, saying it could not compete with its Chinese competitors, which receive “considerable government and financial support.”

On Tuesday, Deputy Secretary of Energy Daniel Poneman wrote an editorial for “USA Today” in which he blamed China in part for the failure of U.S. solar energy manufacturers to compete.

“Winning will require substantial investments. Last year, for example, the China Development Bank offered more than $30 billion in financing to Chinese solar manufacturers, about 20 times more than U.S.-backed loans to solar manufacturers,” Poneman wrote.

“Unfortunately, expanding production has coincided with short-term softening demand, a product of the banking crisis in Europe and its wider economic effects. The combination has had a dramatic effect on the price of solar cells, which has plummeted 42 percent in the past nine months. This has taken a serious toll on solar manufacturers everywhere, including the U.S,” he continued.

On Thursday, White House spokesman Jay Carney noted that the U.S. is on track to double its renewable energy production in 2012, but it will require commitment in the U.S. to grow.

“We have a choice to make as a nation, because we will be buying renewable energy products, you know, whether it’s wind, biofuel, solar, whether alternative — rather, you know, advanced battery technology, we’re going to be buying that stuff. Do we want to buy it with a stamp on it that says ‘Made in America’ or are we going to buy it from the Chinese or from other countries?” Carney asked.

“We have to be aggressive in competing in the global economy. And, you know, high-tech clean-energy industries are going to be key to winning this century economically.”

But Republicans balk at claims that the Obama administration can decide which companies are winners or losers, and questioned a plan to approve $10 billion more in loans before the stimulus program expires.

“Solar panels have been subsidized by the federal government. States’ governments are also subsidizing or giving taxpayers write-off on their tax return. And yet, these solar panels cannot make it in the competitive world without all these subsidies. And even with them, China is flooding the market with this cheap labor and the solar panels just don’t make sense,” House Energy and Commerce Oversight and Investigations Subommittee Chairman Cliff Stearns R-Fla., told Fox News.

“So I think the administration is on this fervent religion of green jobs and clinging to the idea that solar panel is the answer and it is not the answer,” he said.

Another winner of stimulus who ultimately lost is Mountain Plaza Inc. Despite declaring bankruptcy in 2003, the company received $424,000 from the Tennessee Department of Transportation as part of a grant aimed at installing “truck stop electrification” systems that allow idling truckers to plug-in during extended stops and turn off their exhaust-belching, environment polluting diesel engines.

Mountain Plaza had filed for bankruptcy protection again in June 2010. TDOT, which received a $2 million stimulus grant from the Environmental Protection Agency for the project, said it didn’t learn about the bankruptcy until October, but it is closely monitoring the project.

Elsewhere, Olsen’s Crop Service and Olsen’s Mills Acquisition Co. also failed despite Olsen’s Mills receiving $10 million to increase employment, add equipment and machinery, refinance existing debts and work capital for operations and acquire land. The payout — part of a $64 million package to nine rural businesses in Wisconsin for economic development loan assistance — was delivered in January 2010, after Olsen’s Mills filed for bankruptcy protection for defaulting on a $60 million bank loan.